MR. DAVID GREGORY: Our issues this Sunday: Fear grips the economy, dragging the markets down and crushing confidence. The nation's jobless rate hits its highest point in more than 25 years and more major U.S. companies are caught in the downdraft of this global recession. Will major U.S. banks need to be nationalized? Where is the bottom? And is the administration providing the necessary leadership? This morning, the political debate. With us: from the Budget Committee, Republican Senator Lindsey Graham of South Carolina; and from the Banking Committee, Democratic Senator Chuck Schumer of New York.

Then, our special roundtable on where things go from here and the politics of the recession, the housing crisis, bailouts, the budget and more. With us: author of "Lords of Finance: The Bankers Who Broke the World," Liaquat Ahamed; CNBC's Erin Burnett; former House Speaker, Republican Newt Gingrich; and editor in chief of U.S. News & World Report, Mort Zuckerman.

But first, two key senators in the debate over the economy, Democrat Chuck Schumer of New York and Lindsey Graham of South Carolina.

Welcome both back to the program.

SEN. LINDSEY GRAHAM (R-SC): Thank you.

SEN. CHUCK SCHUMER (D-NY): Good morning again.

SEN. GRAHAM: Thank you.

MR. GREGORY: Jobs, issue number one around the country. This is what The Washington Post reports about its effect on even the effectiveness of the stimulus: "The nation is losing jobs so quickly that the government is having trouble keeping up and faces even more pressure to take further action to stabilize the economy and the financial system. Analysts increasingly view the administration's actions so far as insufficient, given the scope of the problem. The stimulus package was designed to `save or create' 3.5 million jobs. ... But the nation has already lost 4.4 million jobs since the start of the recession." Mark Zandi, noted economist, has advised both sides, says the economy is deteriorating faster than expected, even after the passage of the stimulus plan; that more policy may be needed.

Senator Graham, is more stimulus needed for this economy?

SEN. GRAHAM: More credit is needed in the general economy. We're not going to turn the economy around until we get credit flowing. So the TALF plan that they're coming out with may work.

MR. GREGORY: Which is an extension of credit from the Federal Reserve beyond autos and consumer credit, say.

SEN. GRAHAM: Right. Exactly. I've got people in South Carolina who are thinking about buying a car but are having a very difficult time getting a car loan. But their biggest fear is they think they may get laid off in the next six months. So if we could get credit flowing in the consumer areas, I think it would stabilize the economy more than anything else. Then you tackle housing. There's no amount of money we're going to print in Washington to solve this problem. We've got to get the private sector lending money to consumers to grow business.

MR. GREGORY: But you've got a hole of at least $2 trillion in this economy, and the point is, how do you create demands for goods and services when everyone around the world is unwinding? They're paying off debt, they're not spending money; not businesses, not individuals. Do we need another stimulus plan?

SEN. SCHUMER: Well, I think we have to see if this one works. Look, the president proposed a three-legged stool, and they're just going into effect now. First, a major stimulus. Some said it should be larger, but politics is the art of the possible. We didn't have more votes to make it larger, we did the best job we could. And it's a very significant stimulus. Three and a half to four million jobs is a lot of jobs. Second, housing. The president's plan on housing has not gotten the credit it should, and it's just starting this week. And I think it's going to have a great effect on reducing foreclosures. If you reduce foreclosures, you find a bottom to the housing market and then the banks, who are worried about all this mortgage paper they have, will start lending again. The key to the president's plan there is that it focuses not so much on the homeowner, but on the servicer, the person who puts together the refinancing, the loan package. And two-thirds of the servicers, mainly because some of them have gotten TARP money, have agreed to set up the president's plan to refinance mortgages. Not for the people who are deeply underwater, you know, the subprime.

MR. GREGORY: Right.

SEN. SCHUMER: But for the next group. And that's what's everyone's worried about. And then the third leg of the stool, of course, is financial reform. Getting these banks, as Lindsey says, lending again.

MR. GREGORY: Right. And...

SEN. SCHUMER: And that hasn't started yet, but it has to.

MR. GREGORY: Right, and I want to get to that. There's a confidence problem that is at the base of this economic crisis. Here's one metric, and BusinessWeek had a chart that showed the, the Dow and how it's gone down since Election Day. November 4th it was at 9625, went down on Inauguration Day to 7949. The stimulus bill is signed, it's at 7552. Friday's close, 6626. The president talked about fear that people feel during and interview with The New York Times. Here's a portion of it.

(Audiotape, Friday)

PRES. BARACK OBAMA: And so what I would say to people is, you know, obviously, be prudent. What I don't think people should do is to suddenly stuff money in their mattresses and pull back, you know, completely from spending. I don't think that people should be fearful about our future. I don't think that people should suddenly mistrust our--all our--all of our financial institutions, because the overwhelming majority of them actually have managed things reasonably well.

MR. GREGORY: What the president is trying to do, Senator Schumer, is increase consumer confidence.

SEN. SCHUMER: Yes.

MR. GREGORY: But let's talk about history. FDR, at the height of the Depression, the first thing he did was deal with confidence. Before he dealt with the New Deal and fiscal stimulus, he closed down the banks. He got people to stand by, not do a bank run and take out their money. That hasn't happened here yet. Is he failing in this fundamental issue and mission of restoring confidence?

SEN. SCHUMER: No, I don't believe so. And the polling shows that while people are very worried about the economy, they have a great deal of faith in the president's plan, in the president's ability to get us out of this mess. And the president wisely, I think he said it yesterday, is not promising a bill of goods in three months, so that when it doesn't happen then people are going to say they don't--he said it's going to take a while. So I think the bold action the president has proposed, his very reassuring and honest words, not underestimating the problem but still giving people confidence that we're going to act, is going to work. And it's going to take a little while.

Look, we've gotten into this mess, you know, you could say politically eight years. It's more than eight years. We are a country that, you know, consumed more than we produced, that imported more than we exported, that borrowed more than we saved over the last 20 years, and it's going to take a--the day of reckoning has come.

MR. GREGORY: Right.

SEN. SCHUMER: He's going to get us out of this mess. He is smart, he is bold, he is moderate, but it is going to take a little while. I wouldn't measure the stock market over the day-to-day as to how well we're doing. I think that you're going to have to give the president's plans, which are just taking effect this week, some time to work.

MR. GREGORY: Mm-hmm. Is he restoring confidence?

SEN. GRAHAM: Obviously not in the market. I mean, the one thing I hoped to have happen if he got elected--and I tried to help Senator McCain, as you well know--is that he would govern from the center. Harry Reid said on February the 5th, "I can't imagine what would happen to the financial markets tomorrow if it was reported that this bill would go down," the stimulus package. Well, the stimulus package passed and look at the stock market. The budget is a radical, reckless exercise that's scaring the hell out of everybody who is watching this country's financial situation. It triples the national publicly-held debt between now and 2019. It has an assumption that we're going to grow next year at 3.2 percent GDP when we're not. So this whole idea of these policies have one thing in common: just print more money. I think the president has quite frankly, in his budget, told us a lot about who he is and what he believes, and it's scary.

MR. GREGORY: And why don't you believe that in fact some of what's happening is a response to the policy agenda of the president?

SEN. SCHUMER: Because the policy agenda hasn't begun to work. This is the first week the housing plan is working. This is the first week the stimulus money gets in, in, into circulation. And frankly, the president has a huge burden on his shoulders, as I said, brought up by eight years--if you're going to be partisan, let's say eight years now. But a long time coming. The people are confident in him. And he's been honest, even in the budget. Why is one of the reasons the deficit went up? Because the president said, "I'm not going to say the wars are off the budget. I'm not going to say that other issues, AMT or other things are off the budget." He's being honest about it. He knows it's going to take tough medicine. But the number one way to get us back moving again and to get the budget back in good shape is to get this economy going. And I know those, you know, those on the hard right--Lindsey's a little more moderate--but I know those on the hard right say, "Cut government spending, let's go back to the old Reagan days." Well, the last president who did this when we were in this type of situation was Herbert Hoover. Herbert Hoover said the government should do nothing when we were in a recession, not a depression. We did nothing and it related to a depression. You ask the American people...

MR. GREGORY: Yeah.

SEN. SCHUMER: ...you ask economists--Mark Zandi, you know, McCain's economist--should we do less? No, we should do more.

SEN. GRAHAM: Well, if I may, I think there's a lot of disingenuousness in this budget. One, he assumes in his budget that unemployment will peak at 8.2 percent at the end of this year. Well, unemployment by everybody else's estimation is going to be at 9 percent in 2010. He's projecting GDP growth in the economy in 2009, '10, '11 that I think is wildly optimistic. In, in the...

MR. GREGORY: Do you think they'll fall short of their jobs...

SEN. GRAHAM: Oh, absolutely.

MR. GREGORY: ...creation or number of jobs saved?

SEN. GRAHAM: Absolutely. No one else has these numbers. And he's picking these numbers to make the math work out. This is a tremendous explosion. And he raises taxes.

SEN. SCHUMER: (Unintelligible)

MR. GREGORY: I want to get to something, Senator Schumer, I want to get to the banking issue here, which is so important.

MR. GREGORY: On the banking question, leading economists will say you cannot solve what ails the economy until you deal with saving the financial system, that the stimulus plan will not work.

SEN. SCHUMER: (Unintelligible)

MR. GREGORY: And the fact of the matter is that while the Treasury Department says and indicates that it has a lot of its plan out there, they have not yet decided how they're going to clean up the impaired assets on the banks' balance sheets. Why haven't they come up with that plan yet?

SEN. SCHUMER: But let me just first say, in reference to Lindsey, if we did what the Republican mainstream wants and cut back even further, the numbers would be worse. No one except hard-right ideologues believe it.

Now let's get to the banking issue. First, the two are related. One of the reasons the banks are in worse shape today than they were six months ago in October is because the economy is worse. And every day the economy gets worse the banks, in bad shape already, get worse. So you need to do both at once. You have to get the economy going and you have to solve the financial crisis.

MR. GREGORY: Right.

SEN. SCHUMER: This is very difficult. We have never had anything like this. This is not like the New Deal, where people lost confidence in the banks. This is the banks losing any confidence in lending. We all hear the story, South Carolina, New York, where good, capable businesses...

MR. GREGORY: It's been difficult since the previous administration that wouldn't take on the assets either.

SEN. SCHUMER: But the question is not to do it quickly, as Hank Paulson and George Bush did, but did--do it right. And here's what they're doing right now. They're undergoing thorough evaluations of the banks that are in trouble. That should be finished in a couple of weeks.

MR. GREGORY: Right, the so-called stress test.

SEN. SCHUMER: Right. Then they will not come up with a one size fits all plan. Different banks need different types of solutions. And they have a number of different tools which they've talked about. In addition the TALF, which I think is very positively regarded--this is the Federal Reserve saying we're going to guarantee car loans, small business loans. It worked in the area they did it in October. It was the one thing the president--President Bush did that worked.

MR. GREGORY: Mm-hmm.

SEN. SCHUMER: It worked for commercial lending, it worked for interbank lending. You're going to see a real effect now. So here is the only thing I'd say, David. We all are a nation of very--we want very quick results. The president has wisely said it's going to take awhile. He is smart, he is thoughtful. He's very active, no question, but he's moderate.

MR. GREGORY: Do you...

SEN. SCHUMER: And I think these plans, if you give them a chance, are going to succeed.

MR. GREGORY: Do you still believe, Senator Graham, that nationalization of at least some banks will be necessary?

SEN. GRAHAM: Once the stress test is administered, we will look at the state of play of the banks. And here's what I'm trying to tell folks back home. I don't think a TARP 3 is available. If you had a TARP 3 proposal--there's $250 billion in the president's budget for another round of TARP. I don't think he'd have the votes to infuse more capital in the banks unless something happens.

MR. GREGORY: Would you vote to give more money?

SEN. GRAHAM: No.

MR. GREGORY: You wouldn't do it?

SEN. GRAHAM: We got to look at these banks. And the question becomes, when are you throwing good money after bad? When would it be better to take the bank over, break it up, sell it off and better manage the bad assets vs. just infusing it with capital? That, to me, is an option, call it what you like, that needs to be put on the table. It's the last thing you want to do, but ideology is part when it comes to me. But this whole series--the stimulus package was $787 billion that I think missed the boat dramatically.

MR. GREGORY: All right, but I want to stay focused on this nationalization, this question.

SEN. GRAHAM: Yeah, right.

MR. GREGORY: Should government be in the business of running banks? Now, let's be clear what we're talking about here, because...

SEN. SCHUMER: The federal government is bad at making those type of decisions. The danger of crony capitalization, you know, the federal government or some powerful senator, president, someone saying, "Do this because I believe in this project or that," it's noneconomic. Bad.

What is good nationalization? We should probably have a better term. Some people have called it--have come up with other terms.

SEN. GRAHAM: Receivership.

SEN. SCHUMER: Receivership or whatever. The government--and the FDIC has done this. We did this during the S&L crisis. Once these evaluations occur there may be some banks--we don't know which ones, and I'm not going to name any--that will never make it. And Lindsey is exactly right, and he's been saying this, to his credit: We don't just keeping putting money in, money in, money in, and the bank never solves itself. You've got to come clean. What you do is the federal government comes in, it clears out the management, it tells the existing stockholders you're gone. It takes the bad assets and takes them off the bank's books and then recapitalizes the bank with private dollars and a new private group and management run it.

MR. GREGORY: But do you think the government...

SEN. SCHUMER: That should be...

MR. GREGORY: Is the government dithering right now with capital injections...

SEN. SCHUMER: No.

MR. GREGORY: ...the way they've been doing it?

SEN. SCHUMER: I think--David, I think what they have to do is not act first and then think and evaluate, but the opposite. They are now evaluating these banks.

SEN. SCHUMER: ...right before. And so they have a little bit of breathing space to analyze this and do it right. Do it strongly, but do it right. And that means one size doesn't fit all.

SEN. GRAHAM: But I don't believe there's enough money in TARP 2 to stabilize housing and deal with the undercapitalized banks. So the Federal Reserve is a player in this. But politically--I may be wrong, Chuck--but politically we're in a spot now where the Congress is not going to reauthorize a TARP 3, unless...

MR. GREGORY: There just isn't the political will.

SEN. GRAHAM: There's just not the political will unless something new happens. And when the stress tests are administered and you can see that this bank is a zombie bank...

MR. GREGORY: Mm-hmm.

SEN. GRAHAM: ...I think there's growing political will that we're not going to keep throwing good money after bad.

MR. GREGORY: All right, I want to get into...

SEN. SCHUMER: That's true, but there's just one other point here. It's very expensive to even do the good nationalization.

SEN. SCHUMER: Oh, no, no, no, you have to make up for what they are on the books vs. what their actual value is.

MR. GREGORY: And if they continue to lose money...

SEN. SCHUMER: Exactly.

MR. GREGORY: ...the government could be on the hook for a lot more.

SEN. SCHUMER: So there is not quick and easy answer.

MR. GREGORY: OK.

SEN. SCHUMER: One other thing I'd say on the TARP, I think it will not, certainly--and the president, I think, is aware of this--it certainly will not be renewed without really tough oversight, with much stronger parts of executive--limits on executive compensation. I like clawbacks, for instance.

SEN. SCHUMER: And without some guarantees that if we're going to put any more money in, we're going to actually see lending to his car buyer and to my small business in New York.

SEN. GRAHAM: Right.

MR. GREGORY: I--Just a couple minutes left. I want to get to an important debate this week, and that's about this spending bill, this omnibus spending bill that's full of pork, full of pet projects. Senator McCain, on the floor of the Senate this week, had some choice words.

(Videotape, Monday)

SEN. JOHN McCAIN (R-AZ): It is the president of the United States business to do what he said. In his, his pledge last September, President Obama said during the debate in Oxford, Mississippi, "We need earmark reform, and when I'm president I will go line by line to make sure we're not spending money unwisely." So what, what is brought to the floor today? Nine thousand earmarks. So much for the promise of change.

(End videotape)

MR. GREGORY: Now, as Senator McCain pointed out, this is a bipartisan disease. Forty percent of the earmarks are from Republicans, that's $7 billion. Should the president veto this bill?

SEN. GRAHAM: Well, I'll leave that up to the president. We do need earmark reform. I wish he would veto the bill. We'd get back together and come up with the earmark reform process. Senator McCain does not object to members of Congress designating money to be spent in their state, as long as it has a federal purpose that's transparent and people understand what the money's going to be spent for and will have a say about whether or not it's a good idea. That system doesn't exist. I think it would be good for the country if the president and Senator McCain could meet, soon, sooner rather than later, and come up with a package.

MR. GREGORY: And yet Senator McCain is actually giving you a hard time.

MR. GREGORY: He's on Twitter, and number six on his list of pork barrel spending, $950,000 for a Convention Center in Myrtle Beach, South Carolina.

SEN. GRAHAM: Yeah. Yeah.

MR. GREGORY: You want him to--you want the president to veto this spending bill?

SEN. GRAHAM: I voted to take all earmarks out, but I will come back in the new process and put that back in. Myrtle Beach, South Carolina, we're trying to build an international airport, an international convention center and open up a new interstate highway to diversify Myrtle Beach's economy.

MR. GREGORY: Yeah.

SEN. GRAHAM: This came through the Small Business Administration.

MR. GREGORY: You've got 37 earmarks, and you think they're more important than other people's projects around the country.

SEN. GRAHAM: I think I should have the ability as a United States senator to direct money back to my state as long as it's transparent and it makes sense, yes.

MR. GREGORY: Senator Schumer--yeah.

SEN. SCHUMER: Let me say this, David. We have reformed earmarks. When Democrats came in, the earmarks got out of control under the old administration. In two--in 2005...

SEN. SCHUMER: Wait. Well, let me explain what's happened here. There is--we're going to make more reforms, too. But there's transparency and there's accountability. For the first time, every earmark is online, you can get it before it even comes into the appropriations bill, so everyone can see it. Second, every earmark has someone's name attached to it. There's my name attached to some, there's Lindsey's name attached to some. So you can no longer ever get the kind of bridge to nowhere that brought everything--and that was put in at the last minute in the conference committee with no name on it. People for weeks searched who put this in. So there has been reform.

SEN. SCHUMER: And--no, I--of course they care about pork, and I said that.

MR. GREGORY: Yeah.

SEN. SCHUMER: That little quote people talk about, they cut it in half. I said they care about other things as well. But the bottom line is there's been serious reform. We are now this year--two years later, there's one-fifth the earmarks there were before. Not 80 percent, 20 percent from before. They are transparent, no bridge to nowhere could occur.

We're going to keep reforming. Here's three more things we're going to do. Next year, every request is going to go online. So it's not just the ones that are about to be put in the bill. Second, we are going to make them available much earlier. And third, we have made a commitment that there will be no more than 1 percent as earmarks. Some earmarks are good earmarks, as Lindsey said.

MR. GREGORY: Mm-hmm.

SEN. SCHUMER: I'll give--can I give you one little example?

MR. GREGORY: Real quick.

SEN. SCHUMER: Because everyone talks about the negatives. Mortgage fraud is killing Brooklyn, and lots of innocent people are hurt. The DA of Brooklyn, a well-known prosecutor, came to me and said, "The federal government won't do this, they're too busy with terrorism and drug stuff. I don't have the money to do it." In this bill are money for five investigators, four accountants and three prosecutors, some number like that, to go after mortgage fraud of--they're vicious people who have gone after these people. If we had done this without earmarks...

SEN. SCHUMER: ...it would have taken me two years to propose a government program...

MR. GREGORY: All right, I...

SEN. SCHUMER: ...a year for them to apply, and he might not have gotten it.

MR. GREGORY: All right.

Real quick before you go, Senator Graham, a political question. A lot of back and forth between the White House and Rush Limbaugh, radio talk show host. Is his prominence and influence right now in the Republican Party good or bad for the party?

SEN. GRAHAM: Well, I think Rush Limbaugh's prominence in the Republican Party is not what we're talking about. His prominence in the radio world to gin up people for conservative calls is prominent. He doesn't play in the Republican Party, he's not an elected official. He doesn't make...

MR. GREGORY: You don't think he has influence over lawmakers?

SEN. GRAHAM: I think--sure. When people call, some people give in. I'm Lindsey Grahamnesty. He's been on me for two or three or four years about different things. And I take it for what it's worth.

SEN. SCHUMER: He calls me worse.

SEN. GRAHAM: Yeah. I mean, no, stop talking about Rush Limbaugh at the White House. Work with us to solve housing and banking.

MR. GREGORY: All right, we're going to leave it there. Senators, thank you very much.

And coming next, the housing crisis, bailouts, the budget. Where do we go from here? Our special economic roundtable weighs in: Erin Burnett, author Liaquat Ahamed, Mort Zuckerman and Newt Gingrich all here, only on MEET THE PRESS.

(Announcements)

MR. GREGORY: Insights and analysis from our special economic roundtable, after this brief station break.

(Announcements)

MR. GREGORY: We're back and we're joined now by Mort Zuckerman, Newt Gingrich, Erin Burnett and author Liaquat Ahamed. Welcome to all of you.

Liaquat, I want to start with you. The book "Lords of Finance," how central bankers in the run-up to the Great Depression got it wrong, is widely read around Washington. And in the epilogue you write this: "Anyone who writes or thinks about the Great Depression cannot avoid the question: Could it happen again?" That's the big question now.

MR. LIAQUAT AHAMED: Well, it could. If you take the current situation, we're 18 months--or 16 months into the current recession. If you go back to the Great Depression and you look at where we stood 16 months into that Great Depression, we're about at the same place. The stock market is down 50 to 60 percent, profits are down 50 percent, unemployment is up from 6 to 10. What happened then was the bottom fell out of the world economy because they applied the wrong medicine. They tried to control the budget deficit, they let the banking system go under, they didn't bail out a European bank that caused the financial panic in Europe, and they just basically let the economy crumble and applied the wrong medicine. This time I think we're applying the right medicine. The only question is, the patient is so sick, are we applying the right doses?

MR. GREGORY: And the question of sickness, look at a headline from Saturday's Wall Street Journal. For GE--General Electric, our parent company here--GM and Citi, these are the stock prices: $7.06 for GE, a buck 45 for GM, $1.03 for Citibank.

MR. GREGORY: ...shares are down 59 percent. And Joe Nocera, who writes a column, weekly business column in The New York Times, wrote this: "So this is what it has come to. General Electric appears to be in trouble. General Electric! It boggles the mind. ... I called my friend Jerry Useem, who used to cover GE for Fortune magazine. ... He was stunned by this week's developments. `The last time GE cut its dividend was during the Great Depression,' he pointed out. He was quiet for a minute. Then he added, `If GE is in trouble, God help us all.'"

MS. BURNETT: That's probably a true statement. You know, there's two points on this. One is the market. And when you look at stock prices like that, it is shocking. Half of Americans own stocks, so it's painful for everyone. But what you are seeing is really just a fear and lack of confidence in any corporate earnings whatsoever. So that's part of the reason why the market has gone down. People instead are choosing to put the money in the bank. You've seen a surge in deposits. So that's what you're seeing there. We are down from those November lows. What's amazing is that 42 percent of the stocks in the S&P 500 are actually up since November. You have seen some strength in certain areas, maybe linked to the stimulus. So the market story is a little bit more complex than some of those headlines would seem. But that headline also, in terms of the G.E. comment, captures the other issue out there, which is the media. I mean, I've been collecting words that the media has been using to describe the crisis, and carnage, apocalypse, bleeding, hemorrhaging, crash. What are we going to do when things do get worse? There is something to be said for, in a sense, loss of perspective and a sense of hyperbole that's taken over.

MR. GREGORY: But is it hyperbole, Mort, or are things really as bad as they appear?

MR. MORT ZUCKERMAN: Well, we don't know where the bottom is. Nobody knows where the bottom is. We're in an unprecedented situation; therefore, it is unpredictable. But I do agree, I think the, the bubble that has burst that is the most important bubble is the bubble of confidence. Nobody believes in anything else. Businesses don't believe in other businesses, banks don't believe in other banks. So we have a huge problem of confidence. And it just reminds me of the economist who walked past $100 bill and didn't pick it up, and his friend said, "Why didn't you pick it up? It's yours for the taking." He said, "If it had been worth something, somebody else would've picked it up." I mean, there is no confidence in the system, and that's going to take a long time to put together. And it's not going to happen just on the basis of rhetoric. We're going to have to see employment go up instead of down, we're going to have to see housing prices go up instead of down.

MR. GREGORY: Hm.

MR. ZUCKERMAN: We're going to have to see a credit system that begins to work. Credit comes from the Latin word credary, which means to believe. Nobody believes anymore.

MR. GREGORY: Right. And, Mr. Speaker, we've got a couple of historians on the panel here this morning. The president says don't be afraid. He told The New York Times, we showed it earlier, you know, don't put your money under your mattresses. He's saying it might be a good time to buy stocks, even. But The Wall Street Journal editorialized this week and said no, there's actually a negative response to his agenda, and that's what's causing this loss of confidence. This is what the Journal wrote: "What's worrying about the plunge in equities ... especially in the last week since Mr. Obama released his radical budget, is that it has come amid the unveiling of the president's policy agenda. Equity prices have reached--reacted to those proposals by signaling that they expect a much deeper and longer recession."

FMR. REP. NEWT GINGRICH (R-GA): Well, first of all, this is a 80-year experience. We've not seen anything like this level of testing in 80 years. That's almost three generations. So we need to stop and take a deep breath and say this is not politics as usual, this is not games as usual. What do we have to learn so that we as a people can pull ourselves out of this? And I think it's much more fundamental than anything going on in Washington right now.

Second, the great--one of the great breaks of the Depression was the passage of the Smoot-Hawley Tariff, which created enormous pain in the world market. I would suggest that the Obama tax increases, both the energy tax increase in his budget and the war against everybody earning over $250,000 are, in some ways, the Smoot-Hawley Tariff of this cycle. You have a vice president who says, "Put them in the brig," that's a direct quote, talking about CEOs. You have a senator from Missouri who describes them as "idiots," OK. Now, let's say you have money. Let's say you're successful and you look at this administration. Do you really want to risk your money? Or do you want to, in fact, put it in a mattress? A number of successful investors I've talked to have said, "I'm not doing anything. I don't trust this administration." I mean, you've heard people talk about clawback. You heard Senator Schumer say clawback.

MR. GREGORY: Mm-hmm.

REP. GINGRICH: Well, what does clawback mean? Clawback means the government's going to decide that whatever you thought you had earned is not yours, and they can intervene and take it back from you post facto. What do we have with the mortgage bill that just came through the House? A trial lawyer and a, and a, and a bankruptcy judge can rewrite mortgage contracts. Now, what does that say to the next cycle of mortgage contracts?

REP. GINGRICH: That means I shouldn't loan you the money for your mortgage unless I have built in a risk factor for you getting it rewritten. I mean, I think this administration's anti-business, anti-success rhetoric and its tax increases are an enormous burden. And the energy tax increase is as big a threat as anything they've got to recover.

MR. GREGORY: Mm-hmm. The question is, does, does that approach, not assuming you agree with that that's the approach, stifle innovation? Does it stifle an ability for an economy to recover?

MR. ZUCKERMAN: Look, I have to say I don't agree with The Wall Street Journal editorial, and I'm afraid I don't agree with Speaker Gingrich. There are something else that happened last week. The worst unemployment numbers that you could've imagined were announced, and that showed that the economy is declining at an accelerating basis. So I think there are facts are on the ground. I think the--it is possible to argue that the stimulus program was inadequate. And I would--I happen to share that view. And I think they ought to prepare for another stimulus program, because we're just going to have to come back over and over again. I don't believe it's the ideological environment. It may have affected some of the investors. But it is the fundamentals of the economy that I think are driving the market.

MR. GREGORY: Let me get back to this question, Liaquat, of confidence. You write about not just the Depression, but the run-up to the Depression. One of the things we know about FDR, and I mentioned this with the senators, the first thing he does is speak to the confidence question. He shuts down the banks--we were talking about this--just for six days. But it calmed nerves of investors, it prevented a bank run. He also, acting as a kind of economist, took the dollar off the gold standard, which had the effect of rising prices during a deflationary cycle. And yet here we are with the Treasury still not deciding how they're going to deal with the problem at the core of the banking problem, which is how to relieve the banks of their impaired assets that are dragging not only their market value down, but also their balance sheets.

MR. AHAMED: Well, I think we had a--we were in the eye of the finance storm back in the fall, and since then the, the conditions in credit markets have gone down. We do face a problem in the banking system, but it's not people taking money out of banks, it's putting--in fact, they are putting money into bank deposits. The problem we face is a lack of equity. And that's--that has to be dealt with. Now, it can be dealt with in a variety of ways. It's not really a technical issue. I mean, there's a lot of debate about how to do it. The fundamental problem is a political issue. It's going to take a lot of public money. There is no way to do this without over $1 trillion of public money.

MR. GREGORY: And that's such an important point, and we talked about this before. There doesn't appear to be the political will, which is a crucial point.

MS. BURNETT: There doesn't appear to be the political will. And to your point, there is a real question as to when we're going to be done. I mean, AIG is a perfect example. It was amazing to hear the Fed chairman, Ben Bernanke, say AIG, upon direct questioning is not a zombie institution, which I think surprised a lot of people. I think that was an effort to instill confidence. But the reality of it is we've put $162.5 billion into AIG.

MR. GREGORY: Again, that's an insurance company that was in the business of credit defaults, losses...

MS. BURNETT: Right. And it was unregulated. The losses, frankly, are in some senses unknowable. And the one thing I think we all know is that $162.5 probably isn't enough.

MR. GREGORY: Hm.

MS. BURNETT: If you can't put more money in, then you have to raise the question of, what happens if we do let an institution like that fail? AIG was doing a lot of the things Lehman was doing, but it was 50 percent bigger. We all know that Lehman, in a sense, was seen as the trigger for the overall crisis.

MR. GREGORY: Right.

MS. BURNETT: So do we actually run the risk of, OK, the next test if going to be let's let one of these fail and see what that would do to the crisis?

MR. GREGORY: Mr. Speaker, Secretary Tim Geithner, the Treasury secretary, has not been well regarded on Wall Street, or necessarily by the public. They will claim inside the Treasury that he is staffing up, that he's got a lot of plans out there. But the fact that he has not announced the plan for relieving the banks of their assets has now reached critical mass of ineffectiveness to the point where he was a parodied on "Saturday Night Live" last night. Here's "Saturday Night Live" portraying Mr. Geithner.

(Videotape)

MR. WILL FORTE: (As Tim Geithner) Earlier today I proposed that the Federal Treasury set aside $420 billion. This $420 billion will be placed in a special fund and will go to the first individual who comes up with a workable plan to solve the banking crisis.

(End videotape)

MR. GREGORY: Good for a laugh, but does it speak to a more fundamental problem about political will?

REP. GINGRICH: Look, here, here is, I think, the core of where we are. We're in a new world different than any of us grew up in. None of us--there, there are no experts. It's important to remember that even with FDR, who was the greatest political leader of the 20th century, we had 15 percent unemployment in 1939. I mean, so there's no, there's no magic that says here's the way you automatically recover from this kind of a mess.

The average American looks up, they distrust politicians in general and they don't think they've been told the truth, and I think they got good reason. They've watched a Bush/Obama spending cycle that began with a stimulus package last year which failed at $180 billion, a housing package in August which fail--or July which failed at $345 billion, a Wall Street bailout at $700 billion, a Federal Reserve guarantee of $4 trillion; a stimulus package of $787 billion, which we're now being told weeks later isn't big enough, but which had to be passed so quickly no one could read it, because we had to get it out there immediately. And now they got probably, let's say, $2 trillion from Geithner in, in guarantees. So they look up, as an average citizen, and say, "What should I believe?" And this is where I think the failure to veto the set-aside bill becomes important, because you can't talk about political will in the abstract. This president made a series of commitments. He said that you'd have five days to read every bill before I signed it. That's been broken. He said, "I'm against earmarks." There are now 9,000 earmarks. He's already had two Democrats--Russ Feingold of Wisconsin and Evan Bayh of Indiana--say they would vote to sustain a veto. They've urged him to veto the bill. This president has to decide, is he an inside president playing games with the insiders, in which case he's never going to build trust with the public, or is he prepared to break the system on a bipartisan basis? And...

MR. GREGORY: But to that point--Mort, but to that point, here's the paradox of Obama's leadership right now. Great confidence in him, great anxiety about the economy and even some of these policies. This is how Newsweek puts it, the "Honeymoon In Hell. Despite the tumbling economy, Barack Obama," president Obama, "continues to enjoy a honey moon with the American people. Overall, 58 percent of Americans surveyed approve of the job Obama is doing, while 26 percent disapprove. ... 72 percent of Americans say they have a favorable opinion of Obama--a higher rating than he received ... during the presidential campaign last year." He's in the driver's seat.

MR. ZUCKERMAN: Well, he is in the driver's seat in a personal way, but in a political way he's not in the driver's seat. He has not found yet the way to translate his personal popularity into political credibility and into credibility with Congress. I mean, we have a huge problem out there and to some extent, as I say, it's not just the credibility of the president. What's happening on the ground is so serious now that there is a sense in the country we're not--we're hoarding cash, we're not going to spend until we see whether Washington's policies work. And I--who could blame them for that? So he's just got to work.

Now, I'll tell you, when, when President Roosevelt gave that--the only thing you have to fear is fear itself, somebody followed him on the air. It was Will Rogers, the most trusted man in America, and he gave credence to what President Roosevelt said. He also said when we suspended the banks, only sound banks would open. So the assumption was if the banks could reopen after the bank holiday, they would be sound banks. Nobody has that credibility. He has popularity, but not credibility.

MR. GREGORY: Erin:

MS. BURNETT: I think that it's a very good point. And one thing that's interesting, to your point about a war on wealth. I mean, certainly that's how it's been portrayed, and it makes a point across the country. But when you actually look through what he has said consistently, what he's putting through in tax policy is what he said he would do. He's being consistent with his election promises and he's saying, "Oh, well, that--the tax increases won't take place till 2011, so ignore them." Obviously that's a concern because just the announcement of them is negative. But in terms of who he is, it is interesting when he has been consistent in saying he'll pick on executive compensation, but then he'll say, "This is America, we do not disparage wealth." He'll say, "I get it, we can't be seen as helping bankers," and then he'll say, "But we have to have a healthy banking system to have a healthy nation."

MR. GREGORY: Right.

MS. BURNETT: "And I will not govern out of anger." So he is trying to keep that middle line. And whether it is the Democrats or whether it is the Republicans, they're forcing him into a more strident position in terms of how people see him. And I think that's the risk, can he be seen as a moderate?

MR. GREGORY: But, Liaquat, he's my question. What role does economic populism play in this crisis, on the left and the right? The anger that the president talks about--because the reality is, and you talked about this in The New York Times today in an op-ed, what's happening in eastern Europe, their economy's collapsing because of credit drying up. And they actually have the prospect of real social unrest. These are new democracies and they're having such a difficult time. People don't understand the interconnectedness of our banking system, which is even more complex than people inside of it realize. Without clarity both to the market and also understanding on the part of the American people, do you do anything about political will?

MR. AHAMED: Well, I think it takes political leadership. I mean, in 1933 they held hearings in Congress, and we discovered that the president of Chase had shorted the stock of his bank and made $4 million in the great crash. Bankers were known as banksters. But Roosevelt was able to rise above this and, if you like, tap into the, to the positive side, positive side of the American public. We need that in the U.S., we need that in Europe. We need the, the leaders of Germany and France to do the same thing with their public.

REP. GINGRICH: Let me just--both--I thought Mort Zuckerman got it exactly right. This president has popularity, although the fact is his current approval rating's about the same as George W. Bush at the same point in 2001. Fifty-eight percent for a new president is very normal because, I mean, look, you've got to want the president to succeed. You're irrational if you don't want the new president to succeed. Because if he doesn't succeed, the country doesn't succeed. So 50--I mean, that's not--he's...

MR. GREGORY: Do you think Republicans are discordant on that point about whether they want him to fail or succeed?

REP. GINGRICH: I don't think anyone should want the president of the United States to fail. I want some of his policies to be stopped, but I don't want the president of the United States to fail.

MR. GREGORY: Right.

REP. GINGRICH: I want him to learn new policies. So I--but I think Mort's distinction between popularity and credibility is very important, because what he's doing is undermining his credibility while retaining his popularity.

But let me disagree, I guess, directly, about two things. This is not a moderate budget. This is a radical budget. This budget has a $1300 per family tax increase for energy, which means electricity, it means heating oil, it means gasoline. That will be massively unpopular. And then to try to do that in the middle of a recession--they haven't decided if their number one job is get economic growth, or their number one job is redistribute America. Second...

MR. GREGORY: To be fair, though, they're saying that a lot of that--the tax increases occur by 2011, where they're assuming some recovery.

REP. GINGRICH: No, no, no. But I'm, but I'm talking about the energy tax increase will make us permanently more expensive as an economy.

But the second point is if you're successful--I mean, you may not agree with this--the language of this administration, the tone of this administration has, in fact, helped freeze capital in a significant way. I'm not talking about just capital as it relates to Wall Street.

MR. GREGORY: Right.

REP. GINGRICH: I'm talking about whether you want to go out and start a new business, whether you want to go out and do the things you need to do. And if you start talking about raising taxes, that a quarter of a million dollars is sort of the peak for America and about that, you know--we--for example, we're going to reduce your charitable donation...

REP. GINGRICH: ...and a time when the Metropolitan Opera is cutting, is closing up. I think they got to decide, is their goal to rally people to work together to get the economy moving, or is their goal to redesign America by redistributing wealth?

MR. GREGORY: Mort:

MR. ZUCKERMAN: You know, I have to say, I, I, I cannot feel that going from 35 percent on the top tax rate to 39.5 percent is a killer of the economy. I really don't. We have to deal with the long-term fiscal problems of this country. But what I do feel he has done is he has sort of spread his shot. He has too many issues, major issues on the table. He should--the patient is lying on the operating table deathly ill, he's flat-lining. You've got to concentrate on this economy, not on energy and not on health care and not on a whole series of--not on education. You--if you're going to concentrate the attention of the American public, you've got to focus the issue.

MR. GREGORY: But...

MS. BURNETT: Right.

MR. ZUCKERMAN: That is what he has not done.

MR. GREGORY: Yeah, but you, you have administration officials like Peter Orszag, who's head of the Budget Office, who said in January about health care, "The principle driver of our long-term deficits is rising health care costs." Why not take this time now to deal with health care costs, to think about the economy that comes beyond whatever the recovery is?

MS. BURNETT: Well, I think when you talk about the Wall Street perspective or the investor perspective, people will agree with you. I mean, health care is really what will end up bankrupting the economy, much more so than, say, Social Security when you look at entitlement problems. I think people are very confused, though, that he is choosing this moment to go forth with so many things. You know, earlier when you had Lindsey Graham and Chuck Schumer, they said--or Chuck Schumer said, "Well, this housing plan was actually pretty decent, but nobody read it." He's actually right, nobody read it. One could disagree over how useful it will be. But the point is, there's simply too much for people to digest. And the health care, I'm sure we could have great debates over exactly how you'd want to pay for that fix, but doing it right now is actually creating more confusion rather than less.

MR. GREGORY: Yes.

MR. ZUCKERMAN: John Maynard Keynes once said, "In the long run we'll all be dead." Wrong. In the long run we'll all survive and flourish, in the short run we can be dead. I really worry about what could happen in the next couple of years. This whole financial system could come apart. And without that financial system, the economy will come apart. He should, he should concentrate his efforts, and that's what has not happened, and it's confused the public and makes it...

MS. BURNETT: We're arguing over how to break a--the pie is getting smaller right now, and it feels like the whole political discussion and the Wall Street discussion been, "How do we break up a smaller pie?" rather than, "How do we try to get the pie to be bigger again?"

REP. GINGRICH: Can I just...(unintelligible)...for a second what Mort said...

MR. GREGORY: Mr. Speaker, yeah.

REP. GINGRICH: ...because I think it's really important. You have to look at Iceland with real foreboding. The bankruptcy of Iceland is, is a harbinger. You've got to look at a Lithuania. You've got to look at the Russian decision. this week. They're--they need money so badly they signed a bad 20-year deal with the Chinese for oil to get $25 billion in cash, for a country that had lots of cash a year ago. If this--Japan dropped 13 percent in GDP in the fourth quarter. I mean, if you suddenly have the world system starting to come apart, we will learn how important having a world market was by the sheer pain of the system.

MR. GREGORY: Mm-hmm.

REP. GINGRICH: And we haven't even begun to see the political repercussions of countries having this level of pain. And I mean, I think Mort's right, we need almost an emergency national dialogue of all of us--and this means Republicans have to give up some presuppositions, but so do Democrats.

And I would just say in passing, by the way, you can also get to a fiscal solution by controlling spending, not just by raising taxes.

MR. GREGORY: Liaquat, quickly, the, the--what are the lessons historically of a period where you have--as Tom Friedman wrote this week, you look at the great white shark and you say, "We need a bigger boat." And essentially that's what the financial system is saying around the world. If we're going to get healthy here in the short term, we need a bigger boat.

MR. AHAMED: Well, I think the, the basic lesson is that the strong have to help the weak. Strong countries have to help weak countries. We need help from the stronger countries in Europe to help the east Europe, we need help from China and countries with large reserves in Asia to build up their economies. And frankly, within this economy. One of the reasons that I think President Obama is focusing on sort of redistributive issues is because he's trying to protect the people who've been most badly hit.

MR. GREGORY: Let me ask you--I want to ask the speaker a couple of political questions in our remaining time. You talked to Matt Lauer on the "Today" program, and you talked about the political style of this administration, which is relevant here. This is what you said.

REP. GINGRICH: It reminds me of the Nixon White House. And I think that as long as Rahm Emanuel's there, he's sort of the Haldeman of this administration.

(End videotape)

MR. GREGORY: Comparing the chief of staff Rahm Emanuel to the chief of staff during Nixon at the height of Watergate. Pretty strong language. What, what do you mean?

REP. GINGRICH: Well, look. I think what they did with the whole Rush Limbaugh thing--they can't defend signing the 9,000 earmarks, they can't defend an energy tax increase, they can't defend Geithner's failure to pay his income--his taxes, so they decide, "Let's have a fight over Rahm Emanuel"--I mean, "over Rush Limbaugh." It is the exact opposite of what the president promised. The president promised to focus on large things, not small things; he promised to bring us together, not divide us. And I'm assuming here that he is not responsible for the Limbaugh game. I'm assuming it's Emanuel. And if you read the book "The Thumping," which is about Emanuel in '05 and '06, it has to trouble you to have that level of intense partisanship as chief of staff if we're going to in fact come together as a country. And I just think either Emanuel's got to change, or the president's got to understand he is--he is going to have a very partisan regime.

MR. GREGORY: But in this environment, is Rush Limbaugh helping or hurting the Republican Party?

REP. GINGRICH: Rush, Rush Limbaugh is, in the long run, an interesting radio personality who is--it's like saying, you know...

MS. BURNETT: You're being diplomatic.

REP. GINGRICH: No, it's like saying does Chris Matthews help or hurt the Democratic Party? The fact is he has a large audience, he--the audience believes him, the audience calls their members, the audience has an effect. He's not the leader of the Republican party. And Michael Steele's one of the leaders. Bobby Jindal, who you had on recently, is one of the leaders. Sarah Palin's one of the leaders. Eric Cantor's a rising new leader. Paul Ryan's a--I mean, there are tons of leaders in the Republican Party. It is a deliberate strategy by the White House. And Politico did a good job this week of laying out how, how cynically the White House pursued this.

MR. GREGORY: Do you want to run for president in 2012?

REP. GINGRICH: Not particularly. I decided if I said anything other than that, it'd be become some headline and I end up--so "not particularly" is a good answer for this morning.

MR. GREGORY: Do--would, would that change as conditions change? What might trigger a run?

REP. GINGRICH: I'm with Mort. I mean, who knows what--who knows what next month is going to be like? You're asking me to think about 2000 and--I think this country has to have a once in three generation conversation. I don't think we should have it in the 2012 campaign, I think we should have it this year.

MR. GREGORY: All right.

REP. GINGRICH: And I'd be glad to participate in that.

MR. GREGORY: We are going to leave it there. Thanks to all of you very much.

We're going to continue our discussion, by the way, with our roundtable online, ask them some questions that our viewers have submitted via e-mail and Twitter. It's our MEET THE PRESS Take Two Web extra. Plus, read an excerpt from Liaquat's book, "Lords of Finance," and also looks for updates from me throughout the week. It's all on our Web site at mtp.msnbc.com. And we'll be right back.

(Announcements)

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